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Pregnant freelancers denied maternity allowance

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21st Oct 2016
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The modernisation of class 2 NIC has created an unnecessary hurdle for self-employed women who want to claim the maternity allowance.  

Useful cash

A pregnant employee can receive statutory maternity pay (SMP) from her employer, if she has worked for that employer for at least six months. It is not widely known that a self-employed woman can also claim a maternity allowance from the Department of Work and Pensions (DWP), if she has been self-employed for at least six months.

The amount of the maternity allowance set at the same rate as the SMP flat rate: lower of £139.58 and 90% of average weekly earnings. The maternity allowance is also paid for a full 39 weeks once the claimant is at least 26 weeks pregnant, so it is worth claiming.

Prove entitlement

The employee needs to prove her eligibility for SMP by giving notice to her employer at least 15 weeks before the baby’s due birth date, and provide a MATB1 certificate or a letter from her doctor. The employer will know if the woman has worked for at least six months up to the 15 week point, and the payroll records will generally show whether she has earned an average of at least £112 per week to qualify for SMP.   

The self-employed woman has to prove to the DWP that she earned at least £30 on average per week from her self-employment for 13 weeks or more in the 66 week period before the baby is due. She must also show she has paid class 2 NIC for 13 weeks of that 66-week period.

Class 2 hurdle

For periods before 2015/16 class 2 NIC was paid during the tax year, normally by monthly direct debit in arrears. Many years ago class 2 NIC was paid weekly by the self-employed worker by buying a “stamp” at the post office.

From 2015/16 onwards class 2 NIC is payable by 31 January after the tax year end, as part of the taxpayer’s self-assessment. Also no class 2 NIC is assessed if the taxpayer’s profits do not exceed £5,965 for the year, which averages at £114.71 per week. This delay in payment of class 2 NIC has not been reflected in the qualifying rules for the maternity allowance.

Example

Steph’s baby is due on 31 December 2016. To check whether she can claim maternity allowance, she needs to review her self-employed profits in the period that starts 66 weeks before the due date, i.e. from 25 September 2015 onwards. Steph has worked for the required 26 weeks since 25 September 2015, but her class 2 NIC for 2015/16 is not due to be paid until 31 January 2017, alongside income tax for 2015/16.

Solution  

Steph needs to pay class 2 NIC voluntarily in advance in order to qualify for the maternity allowance. But HMRC will not accept voluntary payments of class 2 NIC from self-employed UK residents, with a few exceptions for examiners, ministers of religion and sleeping partners (see full list).

Paper chase

This is where the procedure gets really Kafkaesque. To obtain the maternity allowance the self-employed women needs to make a claim to DWP (on form MA1). The DWP who should then contact HMRC to establish that insufficient NIC has been paid for 2015/16 or for a later year. HMRC must then contact the taxpayer and offer the facility to pay class 2 NIC voluntarily in advance. However, in practice this buck-passing appears to be breaking down and women are not being given the opportunity to pay class 2 NIC of £36.40 (13 x £2.8) in order to receive up to £5443.62 of maternity allowance. 

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Replies (7)

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By David Heaton
21st Oct 2016 15:16

I think there's a misunderstanding somewhere here. The NIC rules as re-written in 2015 do make express provision for self-employed women to pay Class 2 voluntarily in advance (SSCBA 1992, s 11(6), and NICA 2015, Schedule 1, paras 15-18, which deal solely with MA under the new regime).

If profits for the year are subsequently found to have reached the small profits threshold, those voluntary NICs are converted automatically to compulsory contributions, as if they had been paid under s 11(2).

This was covered in the consultations on the 2015 reform of Class 2, and the legislation and guidance on it reflected it from the outset on 6 April 2015.

If HMRC staff don't want to let women pay voluntarily, that's a training and systems issue, not a problem with the law. The fact that it is not covered on the GOV.UK website is not really a surprise, sadly.

The guidance at https://www.gov.uk/voluntary-national-insurance-contributions says "You may want to pay voluntary contributions because: .... you’re self-employed and don’t have to pay Class 2 contributions because you have low profits ..., but you want to qualify for some benefits". This is intended to include women who want to protect their right to MA. They can arrange with HMRC directly to pay voluntarily in-year so as to protect themselves. As Rebecca rightly says, they need 13 weeks of Class 2 payment in the 66-week period, plus earnings of at least £30 for any 13 weeks, and self-employment in that period for at least 26 weeks.

Thanks (5)
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By cmiskin
21st Oct 2016 18:36

I agree that it is a process and training issue and not a problem with the legislation. As far as I am aware, the only process in place for allowing voluntary payment of Class 2 to ensure entitlement to MA is to make a claim for MA, DWP then contacts HMRC and if there is a shortfall HMRC contacts the taxpayer to give the opportunity to make voluntary contributions - a major runaround. I don't think HMRC has a process in place to allow for the Class 2 voluntary contributions to be made and to count as such without going through this hoop? There is also a training issue as not all HMRC staff appear to be aware of the process such as it is?

I am also concerned that there are going to be a lot of future claims to contributions based ESA which fail because the Class 2 has not been paid by the required date which I think is 31 January after the end of the relevant tax year?

ICAEW is seeking comments from members on Class 2/4 issues on https://ion.icaew.com/taxfaculty/b/weblog/posts/collecting-class-2-and-4...

Thanks (2)
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By KateR
24th Oct 2016 11:15

Surely 31st January is the last date for payment of SA tax etc not the due date. If a self-employed taxpayer can get their tax return completed, filed and payment made before then there would be a record of Class 2 NIC.

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Replying to KateR:
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By cmiskin
24th Oct 2016 17:58

31 January is the date that Class 2 has to paid by to qualify the previous tax year for ESA (as well as being the deadline for SA payments). The issue is that those who need to claim ESA may struggle to make these payments by 31 Jan (business may have ceased). Under the old process they would have qualified as they would have paid their Class 2 as they went along.

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By mrshamilton
24th Oct 2016 11:20

I have a client who is still waiting (since the end of May) for the HMRC to issue the bill for shortpaid Class 2 as she falls exactly into this issue. She's had no maternity allowance at all and is really suffering financially. The department has a massive back log and I have the AAM on the case but still no joy, any other ideas for this poor lady?

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By User deleted
25th Oct 2016 22:52

Women wanting money for nothing then feeling cheated when they don't get it?

Quelle surprise!

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By A mum and an accountant
26th Oct 2016 21:35

If your self employed and earning just £30 a week for 13 weeks, maybe because you've just started out, then wouldn't the lower of £139.58 or 90% of your weekly earnings be £27 a week? Or have I misunderstood something?

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